Intel: $20 billion in subsidies from Biden

From this article you will learn:

• The historical background of this decision;
• What to expect next;
• Convincing evidence that there will continue to be subsidies in the semiconductor industry;
• The arguments in favor of investing in certain industries;
• Brief answers to questions of interest.

The Biden administration's decision to give Intel 20 billion is not unexpected, and moreover, as will be shown, we should expect similar gifts to other U.S. companies in the coming months.

The Biden administration's economic policies have been different from day one than those of its six predecessors. The very deep economic crisis of the 1970s in the US, still known as 'stagflation', was overcome by the policies of neoliberalism. President Reagan and his administration launched reforms from the early days, which later became known as Reaganomics. Incidentally, by analogy with that name, the Biden administration's PR people coined the term 'Bidenomics'

The essence of Reagan's reforms was to bet on supply-side economics. The concept was to bet on supply-side stimulus rather than demand-side stimulus, which was supposed to generate economic growth. This policy actually worked. Also in a separate place was tax policy, which can generally be characterized as tax-cutting, although during Reagan's second cadence his administration raised some taxes.

The extraordinary success of this policy, especially against the backdrop of the protracted economic and psychological crisis of the 70s, convinced everyone of the effectiveness of the policy of neoliberalism, of which supply-side economics was a part. Interestingly, not only the Republican Party and its voters saw the power of neoliberalism, but also a large part of the Democratic Party and centrist voters. After the Reagan policies and four years of George Bush Sr. in office, Democrat Bill Clinton came to power and continued much of the economic policies of his Republican predecessors.

The problem is that these policies had serious flaws that were visible from the beginning but were glossed over, ignored and denied until it became a key problem. For example, from 1980 onwards there began a steady rise in inequality that has not stopped, not even for a year in the last 40 years. Moreover, the Covid-19 pandemic has made the gap even worse, both in the US and in many other countries around the world.

The global shift and reorientation of economic policy to favor corporate profits and the corporate top has inevitably hurt everyone else, even though it was initially argued that in redistributing capital in favor of corporations was only part of the process and that everyone would ultimately benefit. One of the biggest roles in this process was once played by the so-called Jobs and Growth Tax Relief Reconciliation Act (JGTRRA). In particular, it prescribed further tax cuts for dividends and capital gains. Capital gains taxes dropped from rates of 8%, 10% and 20% to 5% and 15%.

Why did Intel get 20 billion?

The money was allocated as part of the "Inflation Reduction Act" (hereafter IRA) and the "Chips act". These two acts are aimed at reviving and stimulating industrial production, which for several decades had been shifted to Asian countries where labor was cheap. The name of the act is misleading because the act is about trade relations, industrial development, building green energy, and technology development and competition with other countries.

A large part of the bills budget is money to cover tax exemptions for companies that build large manufacturing facilities in the U.S. and are environmentally neutral. Much of the money is for investments in building solar panel and semiconductor factories. The solar panel industry is still dominated by China, and these laws are also aimed at changing that.

As mentioned earlier, the last 30 years have seen a process of globalization that was supported by both parties and meant non-interference in the economy, shifting production from developed to developing countries and increasing global trade links. In the U.S., this meant not investing heavily in industry and similar projects. Now there is a paradigm shift, and in both parties.

Interestingly, the IRA has been particularly badly received by the Europeans. The criticism of the Europeans is that the IRA contradicts the rules of the World Trade Organization (hereafter WTO). Although for the sake of fairness it should be said that no country in the world fully complies with WTO rules due to the conflicting principles and structure of the statutes of this organization, and even allied countries can occasionally accuse each other of violating WTO rules.

French President, Emmanuel Macron, has said that the lack of a quick response from their side threatens to de-industrialize Europe. The IRA could trigger a subsidization race between the EU and the US. Among other things, a large and constant injection of public money is almost always a bad thing. Incentives for companies to improve are lost. Especially when we are talking about very large sums that are limited. The IRA also aims to reduce U.S. dependence on China in some areas and industries, as well as in natural resources, particularly some minerals.

Critics say that the U.S. dependence on China in some areas is so great that it is almost unrealistic to remove it, even if the optimistic projections of U.S. output that are built into the IRA come true.

FAQ

Q: Why is the Biden administration investing in U.S. manufacturing?
A: Because U.S. industry has been in decline for the past few decades due to the shift of production to China and other Southeast Asian countries, as well as the lack of support from the U.S. government.

Q: To which U.S. industries will the Biden administration direct funds?
A: Based on logical assumptions and information from the bills, the main funds will be directed to solar panel manufacturing, semiconductors, some minerals, electric vehicle manufacturing, clean manufacturing, clean energy, and to a lesser extent other industries.

Q: Which companies are eligible for investment?
A: In addition to Intel, U.S. electric vehicle manufacturers, AI startups, and clean energy producers are eligible for investment or tax credits.